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Notes on the inflation dynamics of the New Keynesian Phillips curve

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  • Andreas Hornstein

Abstract

These notes contain the derivations for results stated without proof in Hornstein (2007). First, I derive the log-linear approximation of the inflation dynamics in the Calvo-model with elements of backward-looking pricing when the approximation takes place around a positive average inflation rate. I derive a version of the \"hybrid\" New Keynesian Phillips Curve (NKPC) that can be estimated using standard GMM techniques. Second, I characterize the inflation dynamics implied by the NKPC when marginal cost follows an AR(1) process. For this purpose I derive the autocorrelation and crosscorrelation structure of inflation.

Suggested Citation

  • Andreas Hornstein, 2007. "Notes on the inflation dynamics of the New Keynesian Phillips curve," Working Paper 07-04, Federal Reserve Bank of Richmond.
    • Handle: RePEc:fip:fedrwp:07-04
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    References listed on IDEAS

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    1. Argia M. Sbordone & Timothy Cogley, 2004. "A Search for a Structural Phillips Curve," Computing in Economics and Finance 2004 291, Society for Computational Economics.
    2. Timothy Cogley & Argia M. Sbordone, 2006. "Trend inflation and inflation persistence in the New Keynesian Phillips curve," Staff Reports 270, Federal Reserve Bank of New York.
    3. Guido Ascari, 2004. "Staggered Prices and Trend Inflation: Some Nuisances," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 7(3), pages 642-667, July.
    4. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
    5. Argia M. Sbordone & Timothy Cogley, 2004. "A Search for a Structural Phillips Curve," Computing in Economics and Finance 2004 291, Society for Computational Economics.
    6. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 2005. "Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy," Journal of Political Economy, University of Chicago Press, vol. 113(1), pages 1-45, February.
    7. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
    8. Gali, Jordi & Gertler, Mark, 1999. "Inflation dynamics: A structural econometric analysis," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 195-222, October.
    9. Andreas Hornstein, 2007. "Evolving inflation dynamics and the New Keynesian Phillips curve," Economic Quarterly, Federal Reserve Bank of Richmond, vol. 93(Fall), pages 317-339.
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    Cited by:

    1. Ragna Alstadheim, 2013. "How New Keynesian is the US Phillips curve?," Working Paper 2013/25, Norges Bank.
    2. Andreas Hornstein, 2007. "Evolving inflation dynamics and the New Keynesian Phillips curve," Economic Quarterly, Federal Reserve Bank of Richmond, vol. 93(Fall), pages 317-339.

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    Keywords

    Keynesian economics; Phillips curve;

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